Factors such as size of the business, nature of the business,
competition, infrastructures, etc. directly and indirectly impacts
your business. To understand about any business, you must first
understand the meaning of the nature of business. This blog is a
complete guide to understanding nature of business, its components,
types, examples and more. Keep reading!
Nature of Business Meaning
Nature of business means the way a business operates and how
different factors work in sync to ensure that everything runs
smoothly. It helps in understanding the primary goal of the business
and is identified through the type of business and its objectives.
Nature of business describes its legal structures, industry,
products & services, and everything else involved that can help it
fulfil its objectives in the long run. This is also one of the reasons
why many businesses have a mission & vision statement that
illustrates their objectives to all major stakeholders.
This statement of purpose provides an outline of the work that
goes behind the scenes of an organization. It also helps paint a
clearer picture of the nature of business.
There are various components of the nature of business such:
Purpose: A purpose of a business is
described by what business is incepted for. Some businesses are
involved in sales, while others are involved in providing
services. This defines as the purpose of the business.
Activities: Activities includes day to day
activities of a business is involved in. For example, a
manufacturing business has a different set of activities as compared
to a marketing or sales business.
Scale: A business can be of any scale and size.
Each scale and size define how it operates, functions, challenges it
faces, etc.
Stakeholders: A business
involves several stakeholders such as owners, employees,
customers, suppliers, and other stakeholders, etc. These
stakeholders have different interests in the business.
Economic Contributions: Your business must
contribute towards society, not just owners and employees. These
contributions include job creation, taxes, motivation to innovate,
boosting trade, etc.
Risk and
Challenges: There are various risk and challenges that
a business is affected by both external and internal factors.
These factors include competition, change in market trends, and
other factors.
Legal Structure: It
defines the legal structure of the business such as legal
responsibilities, benefits and its limitations, etc.
Elements of Nature of Business
Let us look at what elements influences the nature of business of
an organization based on its activities:
Regular Process – This refers to
business activities that are performed on day-to-day base to
generate profits for the company.
Economic Decisions & Actions – The sole
purpose of this activity is to maximize the profits of a
business through the optimum utilization of available
resources.
Value & Effectiveness of the
Product or Service – The goods and/or services
provided by the business must meet the highest standards of
quality and be made available when required. For example, this
could involve converting raw materials into consumables and
ensuring that they are available at the right time and place to
the end user, i.e., consumers.
Working
Capital – This refers to the monetary reserves of a
business that help it run efficiently by meeting its daily
capital requirements.
Production of Goods
& Services – This relates to the assembling,
manufacturing, and sales of goods and services.
Risk Factor – All businesses have to factor in
risk at various levels of operations to be prepared for any loss
or failure.
Fulfillment of the Customer's
Needs – A business should be able to fulfil the needs
and demands of its end user or target customer. The nature of
business can be categorized based on the needs that are being
fulfilled for example, basic needs, financial needs, luxury
needs, etc. Failing to do so defeats the purpose of a
business.
Value Chain of the Service or Product
– It always boils down to a seller and a buyer in any
business. The value chain of the product or service also
determines the nature of its business.
Social Responsibilities – One of the key
stakeholders of a business is the people and societies it impacts
with its operations. It becomes the responsibility of a business to
serve the community by creating more job opportunities, taking up
social causes, and more.
Categories of Nature of Business
A nature of business is majorly defined by the following categories:
Operating Sector: This involves
sectors like technological, private, public, and
international.
Organisational
Structure: This covers partnerships, corporations, sole
proprietorships, and LLPs.
Product Type
Offered: Encompasses the tangible and intangible goods
provided by the business.
Operation
Nature: Describing the nature of the operation as
service, merchandise, manufacturing, and hybrid businesses.
Types of Business Nature
Here is an explanation of various types of business entities:
Public Sector: It comprises
government entities and government-backed companies, such as The
National Health Service (NHS) and The British Broadcasting
Company (BBC).
Private Sector: It
consists of privately run businesses operated for profit, either
individually or collectively. Examples include Greenergy (fuel)
and Reed (recruitment).
International
Sector: It involves businesses engaged in foreign
exports, like McDonald's and Coca-Cola.
Technological Sector: It encompasses businesses
focused on the research, development, or distribution of
technologically based goods and services, such as Apple Inc. and
Microsoft Corporation.
Sole
Proprietorship: Businesses in this sector are run by a
single person with no legal distinction between the owner and
the business entity. Examples include local food joints and
grocery stores.
Partnership: It
includes businesses run by two or more people under a legal
agreement.
Corporation: It involves
large companies or a group of companies acting as a single
entity.
Limited Liability
Partnership: This business structure provides limited
liability to all partners involved.
Service
Business: It comprises businesses offering intangible
products and professional services, including business services,
personal services, and public services.
Merchandising Business: Businesses in this sector
buy products at wholesale prices and sell them at retail prices,
making a profit on the margin. Examples include retail stores
selling clothes, drugs, and appliances.
Manufacturing Business: This sector involves
businesses that purchase raw materials to produce end products,
which are then sold to customers. For example, a food manufacturer
buys eggs for cake production.
Hybrid
Business: Businesses in this sector engage in a
combination of activities, such as selling products, buying and
reselling items, and offering repair services.
Non-Profit Organisations: These organisations
utilise received funds for social welfare purposes.
Nature of Business Example
Here are examples that illustrate the functions of various
business natures:
Transportation - Provide
transportation service to people and for goods.
Manufacturing - It involves in manufacturing
products.
Agriculture - Cultivates
crops and raises animals.
Entertainment
- Creates and distributes creative content.
Construction - Constructs buildings and other
infrastructure.
Services - Provides
intangible offerings.
Freelancing
- Provides services as an independent contractor.
Real Estate - Buys, sells, and leases
properties.
Research & Development
- Conducts research and develops new
products/processes.
Hospitality - Runs
lodging, food/beverage, events, and tourism.
Education - Provides teaching and training.
Healthcare - Offers medical treatment and
promotes health.
How a Business Loan is Helpful in Starting Different Types of Businesses?
A Business Loan is helpful for starting different types of
businesses in India in the following way:
Amount for investment like office spaces, equipment,
inventories, licences, etc.
For growth and expansion of
the business like hiring more staff.
To adopt new
technology and innovations.
For managing adequate
inventory.
How to Apply for a Business Loan?
You can apply for a Business Loan by following these three simple steps:
Step 1: Click on the ‘Apply Now’
button.
Step 2: Fill in the required
details on the loan application form.
Step 3: Upload necessary documents.
On successful verification, the loan amount will be disbursed
into your bank account instantly.
Understanding the nature of business helps you gain enough
knowledge to explore different types of businesses. Ultimately, you
can make an informed decision to know which businesses can be
profitable. With Poonawalla Fincorp, you can avail a Business Loan to expand your businesses
and meet other business financial needs at attractive interest rates.
Frequently Asked Questions
1. Does the nature of business change over
time?
Yes, the nature of business changes over time when you want to
diversify your business because of changes in market conditions,
advancements in technology, regulatory shifts, etc.
2. How will I identify the nature of a
business?
You will be able to identify the nature of a business through its
characteristics like organizational structures, operating sectors and
the types of products or services.
3. What are the internal factors that influence the
nature of business?
The following points the internal factors that may influence the
nature of business:
Ownership model
Size of the company
Management culture
Usage of technology
Staffs
Table of Content
Nature of Business Meaning
Components of Nature of Business
Elements of Nature of Business
Categories of Nature of Business
Types of Business Nature
Nature of
Business Example
How a Business Loan is
Helpful in Starting Different Types of Businesses?
How to Apply for a Business Loan?
To Conclude
Frequently Asked
Questions
About the Author
Poonawalla Fincorp Team
Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.
Disclaimer
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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